On November 15, 2016, Ontario’s Ministry of Environment and Climate Change (MOECC) posted its Offset Credit Regulatory Proposal on the Environmental Registry, where it will be available for comment until December 30, 2016. Offset Credits will increase the compliance options for facilities covered by the cap-and-trade program and they will extend the environmental benefits of greenhouse gas (GHG) mitigation.

For further details of the new cap-and-trade legislative measures, please see our May 2016 Blakes Bulletin: Ontario Announces Significant Climate Change, Cap-and-Trade, GHG Emissions Legislative Developments and the new government website for the cap-and-trade regime, which outlines the dates of the cap-and-trade training sessions, led by the MOECC, and the important 2016 and 2017 registration and submission deadlines.

WHAT ARE OFFSET CREDITS?

Parties that create projects that reduce or remove GHG and meet the offset eligibility rules (Offset Protocols) will be able to claim an Offset Credit. One Offset Credit will be provided to a project that reduces/removes one tonne of carbon dioxide (CO2). The MOECC has provided the following examples of offset projects:

  • A tree planting project — trees absorb CO2 and store the carbon, which reduces the amount of CO2 present in the atmosphere
  • A manure management project that captures and destroys methane gas
  • A system that manages organic waste in a way that does not produce methane or that captures and destroys the methane

HOW WILL THE OFFSET CREDITS AND PROTOCOLS WORK?

The use of Offset Credits will offer cap-and-trade program participants flexibility and potentially lower cost options by using Offset Credits to meet a portion of their compliance obligations. Offset Credits are tradeable in the same way that Ontario cap-and-trade emission allowances are tradeable. They do not expire and remain valid until they are surrendered for retirement by a registered participant in the cap-and-trade program.

An Offset Credit will not be issued until the initiative is registered, emissions reductions, removals and avoidances have been reported and verified and the project has been reviewed and approved. They may be used by facilities in the cap-and-trade program to meet up to eight per cent of a compliance obligation.

The MOECC is developing 13 new Offset Protocols. It is essential that the Offset Protocols are robust to maintain the integrity of the cap-and-trade program. Three protocols based on existing Quebec protocols are being prioritized with a view to being in place by early 2017. They are: (i) the destruction of ozone-depleting substances from insulating foam or refrigerants; (ii) methane destruction in connection with covered manure storage and (iii) in landfills.

The remaining 10 protocols that mostly relate to the agriculture and forestry sectors should be in place by 2017/18. A web-based offset registry will track projects that are applying for, and receive, Ontario Offset Credits.

Offset initiatives that began on or after January 1, 2007, anywhere in Canada, may be eligible for Offset Credits under the Ontario cap-and-trade regime.

NEXT STEPS

The consultation feedback will be posted and an amendment to Ontario Regulation 144/16: The Cap and Trade Program will be drafted for the Offset Credits and Protocols.